In recent years, criminals have launched cyberattacks on the international banking system through the worldwide bank messaging system known as SWIFT — the Society for Worldwide Interbank Financial Telecommunication. The most highly publicized heist involved $81 million in fraudulent transfers from the Bangladesh Central Bank in February 2016 from its account at the Federal Reserve Bank of New York to accounts in Sri Lanka and the Philippines. There have been reports of several other cases of fraudulent transfers involving SWIFT.

Sal Scanio’s recent article, Interbank Liability for Fraudulent Transfers via SWIFT: Banco del Austro, S.A. v. Wells Fargo Bank, N.A., 36 BANKING & FIN. SERVICES POL’Y REP. 8 (DEC. 2017), analyzes one such case of fraudulent transfers via SWIFT to illustrate the framework for allocating liability between banks. In Banco Del Austro, S.A. v. Wells Fargo Bank, N.A., No. 1:16-CV-00628 (S.D.N.Y. filed Jan. 20, 2016), an Ecuadorian bank’s computer system was infiltrated by cybercriminals who were able to steal the login credentials of a bank employee, logon to the bank’s SWIFT terminal, and cause at least 13 unauthorized transfers via SWIFT by re-issuing cancelled or rejected transactions that remained in the bank’s SWIFT outbox and altering the amounts, beneficiary, beneficiary bank, and destination. Between January 12 and January 21, 2015, a dozen SWIFT messages were sent from Banco Del Austro to its correspondent bank in New York, Wells Fargo Bank, N.A. that enabled fraudulent transfers totaling $12,172,762. Banco Del Austro alleged that these transfers were unusual, suspect, or anomalous because they were inconsistent with the bank’s normal activity in its correspondent account at Wells Fargo. Banco Del Austro brought suit against Wells Fargo, asserting causes of action for violations of Uniform Commercial Code (UCC) Article 4A and common law claims of negligence and breach of contract. The article discusses the development of this litigation and analyzes the legal theories of liability as applied to this case of SWIFT cybercrime.

For further information, contact Salvatore Scanio at sscanio@ludwigrobinson.com or 202-289-7605.

From “Confusion” to “Bedlam,” to “Abuse of Trust” and Dithering by the Courts

“After four decades attempting to apply the commercial-activity exception of the Foreign Sovereign Immunities Act of 1976 (“FSIA”), the ‘most significant’ exception to sovereign immunity, indeed the ratio legis of the act, no court has ever decided the meaning of the heart of the exception, and with it the FSIA.” Its leading “clause one” withdraws immunity in any “action based upon a commercial activity carried on in the United States by a foreign state,” which as statutorily defined “means commercial activity carried on by such state and having substantial contact with the United States.” As Mr. Ludwig notes, “Remarkably, no court or commentator has ever been able to say what ‘substantial contact’ means, the primary nexus Congress prescribed for U.S. jurisdiction over foreign states.”

The transition from absolute immunity, by which foreign states could disown commercial obligations with impunity, to a new “restrictive theory” that developed in the 20th century, had by 1945 “engender[ed] much confusion and conflict” in the courts. Under the restrictive theory, a foreign state’s immunity is restricted to sovereign acts and does not extend to when it engages in commercial activity like any player in the marketplace. In 1952, the State Department stepped in, issuing “suggestions of immunity” to the courts which, as Justice Scalia summarized in 2014, “‘thr[ew] immunity determinations into [further] disarray.’”

Congress “abated the bedlam in 1976,” codifying the restrictive theory in the FSIA, replacing it with a “‘comprehensive set of legal standards governing claims of immunity’” in U.S. courts. In hearings on the FSIA bill, with remarkable prescience a subcommittee member remarked: “I hope that trust would not be abused by the courts” (June 2, 1976 Hearing, Rep. B. Jordan). That is just what they promptly did, leading to resurgent bedlam.

A “Statutory Labyrinth” and “Gordian Knot”

The FSIA was major remedial legislation enacted to bring U.S. practice in line with international law. 28 U.S.C. § 1602. Its purpose, stated in its history, “is simple: To assure that American citizens are not deprived of normal legal redress against foreign states who engage in ordinary commercial transactions or who otherwise act as a private party would.” A “constant bane of the federal judiciary,” it has been variously characterized as “remarkably obtuse,” a “statutory labyrinth” and a “Gordian knot.” Better described as a “marvel of compression,” it combines in interlocking provisions traditionally separate questions: the availability of immunity, subject matter jurisdiction over the action, and personal jurisdiction over the defendant—an “economy of decision” that came “at the price of considerable confusion” in the courts.

Superficial Textualism: “Substantial Contact” Must Be More than “Minimum Contacts”

As the article illustrates, the confusion stems largely from an early D.C. Circuit decision, Maritime Int’l Nominees Estab. v. Republic of Guinea, 693 F.2d 1094 (D.C. Cir. 1982) that “read ‘substantial contact’ as demanding more than ‘minimum contacts,’” and based on that superficial textual comparison declared: “in choosing those words, Congress made clear that the immunity determination under the first clause diverges from the ‘minimum contacts’ due process inquiry.” Not deciding what “substantial contact” meant, it reversed a district court finding that U.S. contacts were “more than sufficient” to satisfy clause one, and held it lacked jurisdiction to confirm a $25 million arbitral award. In a 1988 case the D.C. Circuit reaffirmed that substantial contact “is stricter than that suggested by the minimum contacts due process inquiry,” still not deciding what it meant.

Following Maritime, the Second Circuit declared “it is clear that Congress intended a tighter nexus,” and “the ‘substantial contact’ standard … requires a closer nexus than the ‘minimum contacts’ necessary for due process,” Shapiro v. Republic of Bolivia, 930 F.2d 1013 (2d Cir. 1991). Noting “caselaw giving content to the term ‘substantial contact’” was “scant” on this “critical question,” it supplied none itself.

Two decades after enactment, the D.C. Circuit acknowledged in 1998 it had “never decided precisely what ‘substantial contact’” means, but reasserted “it requires more than the minimum contacts sufficient to satisfy due process,” still not deciding it.

Today, four decades on, the two leading FSIA circuits have yet to decide the meaning of clause one. Yet the D.C. Circuit instructs district courts the FSIA is “not a particularly generous” basis for jurisdiction over a foreign state.

The lower courts anticipated 25 years ago that the Supreme Court would resolve the “thicket of statutory interpretation and gloss.” But it held in Saudi Arabia v. Nelson, 507 U.S. 349 (1993) that suit over police detention was “not based upon any commercial activity,” and thus it “need not reach the issue of substantial contact,” leaving for future resolution a four-way conflict, widened since. The Court had occasion again to address clause one in OBB Personenverkehr AG v. Sachs, 136 S. Ct. 390 (2015), but held suit was “based upon” the injury in Austria, not U.S. ticket sale, and rejected Sachs’ revised theory on the “requisite ‘substantial contact’” as “forfeited,” still not deciding what it means.

Mr. Ludwig points out: “Clearing up the decades of confusion, conflict and indecision could not be easier. It can be shown two ways: either through a simple overlooked pincite in the FSIA legislative history, or by the ‘settled meaning’ found throughout in personam jurisprudence that “substantial contact” means ‘minimum contacts.’”

“The legislative history, disdained by textualists and dismissed by the D.C. Circuit in Maritime, explained that the FSIA ‘provides, in effect, a Federal long-arm statute over foreign states,’ citing two seminal cases, International Shoe Co. v. Washington, 326 U.S. 310 (1945), and McGee v. International Life Ins. Co., 355 U.S. 220, 223 (1957). Most lawyers know International Shoe and its constitutional due process test, requiring ‘certain minimum contacts’ such that ‘suit does not offend traditional notions of fair play and substantial justice.’ Less known but as significant, McGee is the seminal case that first defined ‘minimum contacts’ a decade later. The House Report gave a pincite only to McGee, where it defined ‘minimum contacts’ as a “substantial connection” with the forum.”

“What Maritime did to this legislative history, as the saying goes, shouldn’t happen to a dog. Asserting the ‘history does not contradict the clear import of the words Congress chose,’ referring to substantial contact and its own textual assumption, the D.C. Circuit cited only International Shoe, ignoring McGee and its pincite which the D.C. Circuit entirely overlooked. The courts, practitioners and academy, mystified for decades over the meaning of ‘substantial contact’ and misled by Maritime, have all missed the obvious: that Congress lifted that term and the language of clause one almost verbatim from McGee, just as Congress made clear in the legislative history.”

“Alternatively,” the article explains, “two decades of controlling jurisprudence made the term plain and unambiguous in 1976, as have four more decades since. ‘Where Congress uses terms that have accumulated settled meaning,’ as it did in clause one, ‘a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning[.]’ McGee, a unanimous decision, defined ‘minimum contacts’ for the first time as a ‘substantial connection’ with the forum. The next year in Hanson v. Denckla, 357 U.S. 235, 252-53 (1958), another seminal decision, the Court reaffirmed McGee, using ‘substantial connection’ and ‘contact’ interchangeably. As should have been obvious, what Congress invoked 20 years later in requiring a ‘substantial contact’ with the forum was its settled meaning: ‘minimum contacts.’”

Recognition in Sachs Colloquy that “Substantial” Means “Minimum”

After the Ninth Circuit en banc cited the confusion over “substantial contact” without defining it, the petitioner in Sachs did not raise the question in the Supreme Court. Another pending petition Ludwig & Robinson filed did, in a case arising in the D.C. Circuit, Odhiambo v. Republic of Kenya, 764 F.3d 31 (D.C. Cir. 2014), that 30 years earlier in Maritime had created much of it.

As Mr. Ludwig recounts, “Hours after oral argument in Sachs, which focused on points raised by Odhiambo and not Sachs, the court invited the solicitor general to file a brief in response to Odhiambo’s petition.” Odhiambo’s petition evidently resonated with justices at the outset of the Sachs argument. Justice Kagan remarked: it “doesn’t seem … that wording is very different from … that we’ve used in specific jurisdiction cases. … There’s the insistence on … a minimum contact, and … on a … relationship between that contact … and the claim. … I’m having trouble of thinking why… there would be a different test.” Justice Scalia generally agreed: “The definition is, “…having substantial contact with the United States.” That sounds to me like … the due process test.” Justice Sotomayor recognized: “Isn’t the work in substantial contact with the United States? Isn’t that what we should be looking at instead?”

“Indeed,” Mr. Ludwig makes clear, “the courts should be looking at ‘substantial contact.’ As several justices recognized, it is the due-process test of ‘minimum contacts.’” Though the Court later followed the solicitor general’s recommendation (focused on international comity) to deny Odhiambo’s petition, long on the SCOTUSblog “watch list,” its resolution of “substantial contact” evidently was viewed by justices as being correct. And the test the D.C. Circuit imposed on Odhiambo, insisting it was “correct,” was overruled by the Sachs Court as “flatly incompatible” with Nelson, as Odhiambo argued.

Staggering Costs of Judging without Deciding

The article then shows, “The costs of leaving “substantial contact” unexamined and undecided for 40 years are staggering, and three-fold.”

“First, circuit courts routinely uphold dismissals and reverse findings of jurisdiction without deciding what clause one means. … With each passing decade, yet more U.S. companies and citizens are left at the courthouse door, in cases Congress plainly intended the courts to hear.”

“Second, using a placeholder without deciding ‘substantial contact,’ the courts have turned the entire commercial-activity exception on its head. For decades its primary prong, providing ordinary transacting business (clause one) jurisdiction, has been seldom applied; single act (clause two) jurisdiction … has been rarely invoked; and effects (clause three) jurisdiction, ordinarily a residual basis, has become the default into which most cases are shoehorned by the courts. This skewed application, contrary to the language, purpose, structure and history of the act, is the exact reverse of how long-arm jurisdiction customarily is applied.”

“Third, the federal courts … ‘possess no warrant to create jurisdictional law of their own.’ Yet that is what they’ve done for 40 years, creating a parallel universe of jurisdictional case law, … one governing the vast majority of cases against domestic and foreign defendants including those half-owned by foreign states, and another for cases against foreign states and their majority-owned enterprises.”

Time to Abate the Resurgent Bedlam and Finally Decide the Heart of the FSIA

Mr. Ludwig concludes, “Nothing in the FSIA permits such dismissals, skewed application, and parallel universe.” “That the courts have done just what Congress feared, abusing the trust placed in them … for decades, is astounding. But that the courts (with practitioners and commentators) have missed for so long two basic exegeses in plain sight — a simple pincite and classic meaning, abdicated for 40 years their obligation to decide and exercise jurisdiction given, and imposed through mere textual assumption such staggering costs on parties and federal case law, is a veritable legal disgrace.”

“It’s past time to cut the FSIA’s most basic ‘Gordian knot,’ to ‘vindicate the Congressional purposes behind the Act,’ and actually decide it. After Congress abated the ‘bedlam’ over sovereign immunity in 1976 and placed its trust in the courts, bedlam redux has raged ever since. Proper construction and application of the long-arm statute Congress enacted could not be more straightforward, and ‘critical.’ It still awaits decision, 40 years later.”

Robert W. Ludwig is a founding member of Ludwig & Robinson PLLC, a law firm based in Washington, D.C., with an office in Detroit and affiliate in Germany. The firm has a national and international practice in trial and appellate litigation.

In Parts 1 and 2 of his recently-published article, “Heller Sequels and 2nd Amendment, Still Undecided: Part 1 (Law 360 Jul. 20, 2017) and “Heller Sequels and 2nd Amendment, Still Undecided: Part 2 (Law 360 Aug. 3, 2017), Mr. Ludwig showed how a divided Supreme Court in D.C. v. Heller (2008)“overlook[ed] the full text” of the Second Amendment, among other things, to “‘creat[e] a new blockbuster’ individual right to guns ‘not apparent to the court for over two centuries,’ as critiqued by Fourth Circuit Judge Harvey Wilkinson,” while seeming “not to want ‘to deal with any of the more unpleasant consequences of such a right.’” “Relying on dictionaries and English history a century earlier, and disregarding its debates, drafting, and American history,” Mr. Ludwig makes clear that the majority showed “no understanding of the problems confronting the Framers, which had nothing to do with an individual right.” Also overlooked “is another unpleasant consequence: Heller, in taking legislative ‘policy choices off the table,’ never decided the full amendment, including the prohibition and verb (‘infringed’) on which it rests.”

In the third and final segment of his article, “Heller Sequels and 2nd Amendment, Still Undecided: Part 3” (Law 360 Aug. 24, 2017) Mr. Ludwig concludes that “Heller, not having decided the full text, has no binding effect. Its partial constructs are so untenable and unsupported, little remains of its implied right(s), that Seventh Circuit Judge Richard Posner scorned as a ‘snow job’ and Chief Justice Warren Burger earlier called a ‘fraud.’” Mr. Ludwig raises “the pernicious consequences of allowing Heller’s oversights, guesswork, and dicta, and not the people’s legislatures, to determine gun policy, leading to an ‘epidemic’ of gun proliferation and violence.”

Mr. Ludwig shows that Heller, based on a series of “mass oversights,” is only a “partial construction of the prefatory and rights clauses, out of context, without construing the prohibitory clause.” And in “overturning 200 years of understanding, it cited remarkably little or no support in implying each of the component individual rights in announced: (1) to ‘handgun possession’ and to ‘carry it in the home,’ (2) to resist tyrannical government, and (3) to ‘lawful weapons … possessed in the home.’” Mr. Ludwig then illustrates how “its lack of support is apparent in its literal definitions, empty assertions, and conclusory analyses of the relation between the clauses it did construe.”

In implying its oddly-worded right to “handgun possession” and to “carry it in the home,” the Heller Court, in an “epic oversight,” “purported to decide” the amendment “without considering its full text. That is remarkable, especially for Justice Scalia and other court textualists. But for any judge to decide, or lawyer to advocate, the Constitution without addressing its full wording borders on malpractice.” Justice Scalia’s “own treatise states: ‘every word and every provision is to be given effect. None should be ignored,’—one of many such canons not followed in Heller, which simply wrote off the last provision of the Second Amendment. Or out of the Constitution, and with it, a clear exegesis of the ‘baffling’ amendment.”

“Almost as surprising is the failure by the court, lawyers and academy to connect constitutional dots: to recognize that ‘infringed’ and ‘abridged,’” which Heller impermissibly transposed, “are terms of art, one protecting sovereign and the other individual rights.”

So too is Heller’s perpetuation of the notion of a right to guns “as a check on tyranny, the pernicious pablum of the National Rifle Association and other gun groups,” which has persisted too long. “Presented an opportunity to put this dangerous distraction to rest, the majority, needing some rationale to explain how the preamble fit its implied right, endorsed it.” Predictably since, “there have been almost weekly ‘incidents of insurrectionist violence (or the promotion of such violence),’ as catalogued by the Coalition to Stop Gun Violence on its ‘Insurrectionism Timeline.’”

The “great lesson” that a “constitutional republic ‘leaves no room for insurrection’” (cited by Thomas Paine and later Abraham Lincoln), “and the corresponding ‘axiom of our political system’” that federal and state governments ensure constitutional order in each other (as explained by Alexander Hamilton and James Madison), “both seem to have been lost on the court. Heller undermines the former by perpetuating insurrectionist myth,” and “defeats the latter” by “tossing federalism and the existential right of states to arm militia, preserved by the Second Amendment, ‘overboard like tea.’”

“It is also astonishing the court cited as its sole authority—in declaring ‘hundreds of judges’ ‘overread’” its unanimous” decision in U.S. v. Miller (1939) “that ‘arms’ meant ‘military equipment’—a single billy-club case (citing a bladed-weapons encyclopedia) to hold militiamen could bring any ‘lawful weapons that they possessed at home to militia duty.’ That 1980 case and flimsy historical evidence, which the majority underread, if read at all, was the linchpin for its blockbuster right.” Just as astounding, the fact “that lawyers and judges are still not even reading a key case from 1980 and verifying its citations” indicates “they are not doing likewise for the founding record from the 1780s.”

With its “stunning” oversights, Heller, “far from a ‘mighty rock’” as Justice Scalia dismissed the court’s last unanimous decision, rests itself “on sand,” and “settled nothing at all.” Its “own conclusion that its construction no longer (if ever) served the object of preserving state militia, when another did and does, only confirms the impropriety of its implied right.”

And these, as Mr. Ludwig notes, “are just some of the mass oversights that have led to Heller purporting to decide the Second Amendment by implication and guesswork, while taking legislative policy choices off the table.”

“Paying the price of epic legal oversights and miscalculation,” contributing to “an epidemic of gun proliferation and violence, are scores of Americans with their lives each day. Hundreds more are physically or psychologically wounded, their families and communities with them, having economic consequences not only for dependents, but police and health services left to deal with the carnage. Or police themselves become part of the carnage, or add to it when shooting unarmed citizens, fearful of shadows (as Gen. Washington described militiamen), in attempting to serve communities awash in guns.”

Since Heller, particularly after McDonald v. Chicago (2010) expanded its holding against the states, “guns exploded past the population for the first time, to 357 million as of 2013 data. Experiencing now an ‘epidemic of gun violence’ decried in historic 2015 and 2016 front-page and presidential op-eds, which has since grown worse, 36,000 Americans die every year from guns, or over 90 each day, one every 15 minutes.”

The three-part article concludes: “As reminded by Justice Breyer, ‘we’re human, and when it’s 5-4, obviously somebody’s wrong.’ Justice Scalia, who counseled judicial ‘self-abnegation’ in divining original intent, issued his own mea culpa in 2015 about a case of ‘judge-invented doctrine’ and ‘mess that I helped make,’ stating ‘its error has grown more glaringly obvious’ and ‘stare decisis does not recommend its retention.’ Given ‘glaringly obvious’ error in overlooking constitutional text, among other things, it’s time for the courts to apply that candor to the ill-starred Heller.”

Robert W. Ludwig is a founding member of Ludwig & Robinson PLLC, a law firm based in Washington, D.C., with an office in Detroit and affiliate in Germany. The firm has a national and international practice in trial and appellate litigation.

In the second segment of his article, “Heller Sequels and 2nd Amendment, Still Undecided: Part 2” (Law 360 Aug. 3, 2017), Robert Ludwig explores the roots of the Second Amendment, and in doing so shows how the Heller majority, relying on dictionaries and English history a century earlier, and disregarding its debates, drafting, and American history, was left with “no understanding of the problems confronting the Framers,” which had nothing to do with an individual right.”

Mr. Ludwig suggests that, while “overlooking the full text and other things,” as demonstrated in Part 1 and in his previous article, “2nd Amendment Still Undecided, Hiding in Plain View” (Law 360 Jan. 11, 2016), “academics and the courts have been unable to explain something nearly as obvious: what the states demanded they got from its drafter James Madison and the First Congress.”

At the 1788 Virginia ratifying convention, Col. George Mason “drafted, and the Virginia convention proposed, both a declarative amendment (‘That the people have a right to keep & to bear arms; that a well regulated Militia, composed of the body of the people, trained to arms, is the proper natural and safe defense of a free State’) and a corresponding structural amendment (‘That each State respectively shall have the power to provide for organizing, arming, and disciplining its own militia, whensoever Congress shall omit or neglect to provide for the same.’)”

Mr. Ludwig shows how “Rep. Madison, denied a Senate seat and narrowly elected to the First Congress on the promise he would introduce amendments,” ignored any structural amendment that would alter compromises just struck at the Constitutional Convention, submitting a draft that read: “The right of the people to keep and bear arms shall not be infringed; a well armed, and well regulated militia being the best security of a free country: but no person religiously scrupulous of bearing arms, shall be compelled to render military service in person.” House and Senate “committees and stylists inverted the first and second clauses, changed ‘country’; to ‘State,’ eliminated the conscientious-objector clause, dropped ‘well armed’ as redundant and tightened language,” resulting in the Second Amendment.

But, Mr. Ludwig asks, “Why were the generally expressed and extensively entertained fears of Mason and most Anti-Federalists (states’ rights advocates) quieted by the declaration alone, without the structural amendment? That question has never been answered.” The historical record that might explain the Second Amendment and the framers’ decisions, including to eliminate the structural amendment, was not published for decades after ratification, and modern anthologies on both sides of the gun debate, deemed authoritative, contain and perpetuate other mass oversights in addition to the overlooked text. And the record “that might explain the amendment, while more extensive than assumed, is not what might otherwise exist for a founding institution,” largely because “the militia system, a republican alternative to a despised standing army, began an early march to obscurity,” a month before the amendment was ratified in 1791. In “one of the country’s worst, forgotten military disasters, an Indian confederation (bearing British muskets) wiped out nearly a third of the nation’s forces” when “militiamen ran, leading to the first cabinet meeting by President Washington, congressional investigation, and creation of a standing army that became the U.S. Army.”

Yet, despite perceived gaps in the historical record, the framers’ intentions and the historical roots of the amendment are not as elusive as the courts and academy assume. A primary reason why the record has “baffled” academic and legal interpreters is that, as Mr. Ludwig shows, “rather than re-examine assumptions, questions asked, and worn paths through their (abridged) founding record, the general tendency has been to blame the record, or the framers themselves, otherwise regarded as unparalleled political theorists and stylists.”

Unable “to square the circles or mysteries of the amendment,” including how its (first two) clauses fit (overlooking its third), why Madison drafted it the way he did, and why it quieted generally expressed state fears over the right to arm their militia, many scholars like Michael Waldman of the NYU Brennan Center for Justice, conclude: “We cannot clearly know what the framers intended,” reflecting entrenched “received wisdom in academic circles.” “Actually, we can,” Mr. Ludwig writes, as he further begins to demonstrate in Part 2 of his textual and historical analysis of the amendment.

Robert W. Ludwig is a founding member of Ludwig & Robinson PLLC, a law firm based in Washington, D.C., with an office in Detroit and affiliate in Germany. The firm has a national and international practice in trial and appellate litigation.

Almost a decade has passed since a bare (5-4) conservative majority of the Supreme Court struck down D.C.’s handgun ban and two centuries of law and legislative practice in District of Columbia v. Heller, 554 U.S. 570 (2008), implying in the Second Amendment a self-defense right to “handgun possession” and “to carry it in the home.” As “extraordinary as that phrasing, it further implied, in dicta, a related right to insurrection as a safeguard against tyranny,” and a right to any “lawful weapons that they possessed at home.”

In the first segment of his recently-published article, “Heller Sequels And 2nd Amendment, Still Undecided: Part 1” (Law 360 Jul. 20, 2017), Robert Ludwig offers insight into what little (to no) guidance has been provided by the Court over the past decade on how to interpret the “new right(s)” created by Heller. After a “string of denials of certiorari,” conservative Judge Harvie Wilkinson’s prediction in 2009 remains true today: “the ‘Heller majority seems to want to have its cake and eat it, too – to recognize a right to bear arms without having to deal with any of the more unpleasant consequences of such a right.’”

“Another unpleasant consequence of Heller,” Mr. Ludwig points out: “what really awaits decision is the full amendment.” As shown in his previous article, “2nd Amendment Still Undecided, Hiding in Plain View” (Law 360 Jan. 11, 2016), “the Court has yet to address much less decide the full text, one of several major oversights, each showing the amendment has nothing to do with an individual right.”

The amendment reads: “A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.” Heller “dismissed the preamble about state militias, previously enough for ‘hundreds of judges,’ to focus on the ‘operative’ middle clause ‘to keep and bear Arms,’ and rejecting the military argot of the militia era, found an implied right to self-defense. Heller never addressed the last clause—the actual prohibition and verb on which the amendment rests.

Mr. Ludwig illustrates how the notion of a guarantee espoused by the Heller majority, which conservative Chief Justice Warren Burger had called a “fraud” just the decade before, is unsupported even by the text it addressed, and resulted from “implication and guesswork.” “‘Knowledge is essential to understanding; and understanding should precede judging,’ warned Justice Louis Brandeis.” Yet the Court, “in its most consequential decision for American lives today that took ‘seriously the concerns’ over ‘the problems of handgun violence in this country,’ in finding the ‘enshrinement of constitutional rights’ take ‘certain [legislative] policy choices off the table,’ guessed.”

This conjecture has been branded by Judge Wilkinson as “‘judicial lawmaking’ and ‘activism’ that ‘created a new blockbuster right’ complete with ‘embedded’ exceptions, ‘not apparent to the Court for over two centuries,’” and derided by conservative Judge Richard Posner “as ‘faux originalism’ and ‘law office history.’” The latter went further, “noting the author of Heller, Justice Antonin ‘Scalia and his staff labored mightily to produce a long opinion’ that ‘would convince, or perhaps just overwhelm, doubters. The range of historical references … is breathtaking, but it is not evidence of disinterested historical inquiry; it is evidence of the ability of well-staffed courts to produce snow jobs.’”

The “majority’s conjecture was evident in implying a right. It reasoned: ‘The very text,’” or the two-thirds it addressed, “‘implicitly recognizes the pre-existence of the right,’ which it defined as the ‘individual right to possess and carry weapons in case of confrontation,’ a questionable statement even at common law, and ‘novel’ variant that ‘lacks support in the text’ as Justice Stevens said in dissent. ‘No party or amicus urged this interpretation; the Court appears to have fashioned it out of whole cloth.’” “For the majority to imply a private right ignores not only the warning of Brandeis, but also of Chief Justice John Marshall that if such were the intent, the framers would ‘have expressed’ it, ‘in plain and intelligible language.’ And to imply the unstated disregards his further admonition: when amendments proposed in the states and Congress carried no ‘sentiment … generally expressed, to quiet fears thus extensively entertained,’ as true of the personal use of guns, ‘This court cannot so apply them.’”

The Heller dissents “were also guesswork,” Justice Stevens writing “surely [the amendment] protects a right that can be enforced by individuals,” with Justice Breyer clarifying “it ‘protects militia-related, not self-defense-related, interests,’ to ‘assure 18th-century citizens that they could keep arms for militia purposes,’ not ‘keep arms that they could have used for self-defense as well,’ which ‘is not the Amendment’s concern.’” But, as Mr. Ludwig notes, “‘surely’ is conjecture, and militia service was required by law, not a right.” And, “in positing an individual right,” Mr. Ludwig shows how “the dissents gave the majority carte blanche to find one, too.”

Lacking guidance from legal academics who consider the amendment “baffling,” it remains confounding to “the courts and legislators that rely on them because – like the Heller majority, dissents, parties and over 60 amici, influenced by two centuries of myopic focus on the prefatory and rights clauses – no one ever considered the significance of the final clause, or other mass oversights.”

Robert W. Ludwig is a founding member of Ludwig & Robinson PLLC, a law firm based in Washington, D.C., with an office in Detroit and affiliate in Germany. The firm has a national and international practice in trial and appellate litigation.

The Secure Payments Task Force, convened by the Federal Reserve to advance the safety, security, and resiliency of the national payment system, is asking for feedback on a set of payment use cases which together map out the lifecycle of a payment for eight payment types. The payments types include ACH, Card Not Present, Card PIN, Card Signature, Check, Contactless, Wallet, and Wire. The payment use cases are intended to provide a common foundation for the payments industry to understand the landscape as it exists today and the associated risks. Each use case addresses its respective unique payment flow overview, payment type operation, overview of security methods and associated risks, inventory of sensitive payment data and associated risks, and overview of standards.

As a member of the Fed’s Task Force, Ludwig & Robinson is seeking feedback on these payment use cases, which has created an online Payment Use Cases Industry Survey for that purpose.

In addition, the Task Force is presenting Payment Use Case webinars to provide an opportunity to gain a high-level overview of each use case as a supplement to the use case documents, as follows:

Sal’s presentation focused on the legal regime for allocating liability for unauthorized fund transfers, including wire transfers, ACH transactions, and SWIFT transfers. He discussed several key and recent cases under UCC Article 4A that have grappled with the breadth of the “security procedure” defense, applied the UCC test for determining whether a bank’s procedures are “commercially reasonable,” and addressed circumstances where banks were considered to have or have not acted in “good faith.” He covered applicable regulatory guidelines issued by the Federal Financial Institutions Examination Council and the New York State Department of Financial Services, including recent developments on reporting cybercrime.

Sal’s presentation also addressed the continuing trend in the payment card arena in which fraud liability is shifting from issuers to acquirer/merchants under card network rules and recent suits brought by issuing banks against merchants for data breaches. (For an overview of the evolving payment card system and developing loss allocation, see Sal Scanio’s prior article, Payment Card Fraud, Data Breaches and Emerging Payment Technologies, XXI Fidelity L.J. 59 (2015)).

Finally, Sal outlined a number of practical measures that can be taken by financial institutions to reduce their legal and compliance risk.

For further information, contact Salvatore Scanio at sscanio@ludwigrobinson.com or 202-289-7605.

Robert Ludwig offers more legal and historical insights in response to the latest threatened shutdown, this time of the Supreme Court by Judiciary Committee Republicans who vowed not to hold hearings this year on any nominee to succeed Justice Antonin Scalia. Sen. Ted Cruz, a committee member running for the presidency, argued “we’re one justice away from the Second Amendment being written out,” referring to a right to guns newly found in District of Columbia v. Heller, 554 U.S. 570 (2008). Sen. Cruz also vowed in an op-ed to filibuster any vote to protect this “long-cherished” right (of eight years), which “even nonlawyers can’t miss,” unlike those “invented” by liberal courts “that are nowhere in the Constitution.” Not mentioned is Heller’s “judicial activism,” criticized by conservative Judge Harvie Wilkinson on the appeals court where Cruz once clerked, “creat[ing] a new blockbuster right “not apparent to the court for over two centuries,” much less nonlawyers.

“For past generations, there was no ‘long-cherished’ right to ‘write out.’” On the bicentennial of the amendment, former Chief Justice Warren Burger, who knew the difference between his common law right to the shotgun he cherished and the Second Amendment, called a right to guns a “fraud.” Judge Robert Bork agreed, no small irony after Democrats savaged his nomination: “it really is people’s right to bear arms in a militia.” And the justice Bork would have succeeded, Lewis Powell of the Burger court that unanimously reaffirmed there was no right to guns, questioned why the amendment “should be viewed as creating a right to own and carry a weapon that contributes so directly to the shocking number” of gun deaths.

Remarkably, Heller, a sharply divided 5-4 decision overturning D.C.’s handgun ban and two centuries of law and legislative practice, did not address, let alone decide, the full amendment as assumed. Nor did Heller consider, in roiling settled law if not domestic tranquility, the whole constitutional and founding record, which is more extensive and clear than believed.

“One would think,” the article notes, “in construing the right ‘to keep and bear Arms’ which ‘shall not be infringed,’ Heller determined the meaning of ‘infringed.’ Yet nowhere did the court even address it,transposing instead ‘infringed’ to ‘abridged’ (‘abridge the ancient right of individuals to keep and bear arms’).”

“Infringed” and “abridged” are different words, have different meanings, and are not even synonyms. Where words “cannot, in any appropriate sense, be said to be synonimous,” Justice Joseph Story once warned, to “suppose them to signify the same thing,” as Heller did, “would be to defeat the obvious purposes of both.”

“‘Abridge,’ the article points out, “is the little-known term of art Congress invoked” in the First Amendment and “all amendments thereafter for individual rights: the Fourteenth, Fifteenth, Nineteenth, Twenty-fourth, Twenty-sixth, and proposed Equal Rights Amendments (apart from juridical rights in the Fourth through Eighth).”

“‘Infringed,’ used in an amendment associated with federalism, is the constitutional term for protecting sovereignty, which individuals did not possess, unlike states that did.” For example, “nothing is more American than the cries for self-representation during the decade of encroachments by Parliament on the sovereignty of colonial legislatures, which led to the Revolution. Similarly distinctive is the term used to protest them.” Construing “the people” with the sovereign usage of “infringed” permits only a collective, not individual meaning, and constitutional right.

Heller, mistaken on many levels, never reached the question presented: whether D.C.’s ban “infringed” any Second Amendment right, and may have no authoritative effect.

“Why have these terms of art been so long overlooked?” Mr. Ludwig asks. In the case of “‘infringed,’ the nonlawyers’ expression ‘you had me at’ is an apt explanation. For two centuries the amendment’s unique preamble was enough: declaring the necessity of a ‘well regulated Militia,’ it clarified any ambiguity in the clauses that followed,” and canons of construction mandated that result.

Still, “for lawyers to advocate a constitutional position, in this case the Second Amendment, without addressing the constitutional wording, borders on malpractice.” Meanwhile, as “lawyers slumber or lead another misguided insurgency against constitutional government, the republic bleeds.”

The article concludes: “There is no Second Amendment to ‘write out,’ but to actually read and understand, including text even lawyers can’t miss.”

For further information, contact Robert Ludwig at rludwig@ludwigrobinson.com or 202-289-7603.

Robert Ludwig offers new legal and historical insights in response to “The Gun Epidemic,” the first New York Times front-page editorial in a century, urging: “It is past time to stop talking” and start reducing or “eliminating some large categories of weapons and ammunition” in the wake of San Bernardino, Colorado Springs, and daily mass shootings. President Barack Obama, saying “enough is enough,” last week issued his own historic Times op-ed, “Our Responsibility,” and executive actions, constrained not only by Congressional inaction, but suprising myopia about the Second Amendment.

In a timely article, “2nd Amendment Still Undecided Hiding In Plain View” (Law360 Jan. 11, 2016), Mr. Ludwig points out that the Supreme Court in District of Columbia v. Heller, 554 U.S. 570 (2008), a sharply divided 5-4 decision overturning D.C.’s handgun ban and two centuries of law and legislative practice, “remarkably did not address much less decide the full amendment as is assumed. Nor did Heller address, in roiling settled law if not domestic tranquility, the whole constitutional and founding record, which is far more extensive and clear than believed.”

“For openers, one would think that in construing the right ‘to keep and bear Arms,’ which the amendment commands ‘shall not be infringed,’ the court addressed the meaning of ‘infringed.’ Yet nowhere in Heller, overturning 200 years of law that the right was collective and not individual, does the court consider let alone decide that term, a smoking gun hiding in plain view.”

Heller did recognize the text says the right “‘shall not be infringed,’ but did not address what ‘infringed’ means.” Instead it “transposed ‘infringed’ to ‘abridged’ (‘Congress was given no power to abridge the ancient right of individuals to keep and bear arms’), equating the two with no analysis.” Two years later an even more splintered court applied this newfound right against the states to strike down Chicago’s similar ban, again using “‘abridged’ and ‘infringed’ interchangeably, defining neither.”

Infringed and abridged are different words, the article explains, “have different meanings in period and modern dictionaries, and are not even synonyms. Where words ‘cannot, in any appropriate sense, be said to be synonimous,’ Justice Joseph Story once warned, to ‘suppose them to signify the same thing,’ as Heller and McDonald did, ‘would be to defeat the obvious purposes of both.’”

“Why did the framers use, in fact insist upon, ‘abridged’ and not ‘infringed’ when they intended an individual right?,” Mr. Ludwig asks. “The reason becomes obvious when one looks, as urged by Story: ‘It must have been the result of some determinate reason; and it is not very difficult to find,’ here in pertinent drafting history” and founding-era documents, none addressed in Heller.

In other words, Heller “never decided the question presented: whether D.C.’s handgun ban ‘infringed’ a Second Amendment right.” And until the court addresses the verb on which the entire Amendment rests, “arguably Heller, having neither addressed nor authoritatively decided whether anything was ‘infringed,’” has no effect on the courts or legislatures. That would mean “the court’s prior unanimous holding in 1939 which Heller never overruled, as unanimously reaffirmed by the Burger court in 1980, is still controlling.” As the latter affirmed, nothing in the amendment prevents “legislative restrictions,” including those called for in the Times editorial. “Gun rights and control groups have much to debate, just not the Second Amendment.”

For further information, contact Robert Ludwig at rludwig@ludwigrobinson.com or 202-289-7603.

In today’s cybercrime era, a cliché has evolved: there are two types of companies, those that have been hacked (or don’t know it yet) and those that will be hacked. According to Verizon’s 2015 Data Breach Investigations Report, across all industries worldwide in 2014, there were 79,790 security incidents, with 2,122 breaches involving a confirmed data loss, and 700 million compromised records.

The theft of payment cards is a top target in data breaches. Recent data breaches involving theft of payment card records from merchants include Home Depot (2014, 56 million payment cards) and Target (2013, 40 million payment cards), among numerous other companies. Fueled by major data breaches, payment card fraud is escalating. In 2014, the total amount of direct payment card losses to criminals incurred by issuers, merchants, and acquirers was estimated to be $16.31 billion worldwide, an increase of 19 percent over 2013, according to the The Nilson Report, a payments industry newsletter. Meanwhile, the payment card landscape is changing rapidly, with new technologies designed to provide faster and safer transactions.

Sal Scanio’s recent article Payment Card Fraud, Data Breaches and Emerging Payment Technologies, XXI Fidelity L.J. 59 (2015) provides an overview of the evolving payment card system and nature of payment card fraud. The article discusses current and developing loss allocation under federal law and card network rules, and how, in the event of payment card theft as a result of a data breach, loss allocation is being shifted in several developing areas, including Payment Card Industry (PCI) Data Security Standards, consumer class action litigation, claims by issuing banks against merchants, and card network fines and assessments. The article also examines how emerging payment technologies in the form of EMV chip card technology, Near Field Communication, tokenization, and encryption are being implemented in varying degrees, and discusses their expected impact on payment card fraud.

For further information, contact Salvatore Scanio at sscanio@ludwigrobinson.com or 202-289-7605.